Morning Call

0 CommentsTuesday • December 29, 2009 • by alwaters

“I think in terms of the day’s resolutions, not the year’s.”

Henry Moore

Morning Call
December 29, 2009

Gold Update

Big daily gains are always more exciting, but the sideways trend for gold is actually a healthy sign for the long term. The first two rallies above the $1000 mark were followed by a sharp decline as investors simply were not convinced that gold above that mark was the new reality. This time around, gold has built a strong base near the $1100 mark and this will prove to be a good starting point for the next rally. Fundamental supply and demand balances will begin to shift in the first half of 2010 and gold’s appeal as a safe haven against the Dollar will also increase after the present rebalancing among currencies plays itself out.
What to Buy
Even on a day when oil and natural gas are slightly lower and trading volume is expected to be relatively light, we still like the prospects for Devon Energy (DVN). Share in Devon are basically trading at their 52 week high and are climbing slowly in pre-market activity.

Market Outlook

According to futures, yesterday’s modest gain on the Dow will be followed up by an equally small increase at the opening bell. Again, any move in equities this week will be taken lightly as most of the key institutions are out of the game between holidays. Consumer Staples and Energy stocks were the biggest winners yesterday. This morning, it looks like Retail stocks and the financial sector will open lower. Very moderate gains were seen in Asia overnight. Most bank shares were down by about 1% and the airlines were hit hard over concerns following a failed terrorist plot on Christmas day. In Europe this morning, stocks started off rather sluggishly but have since picked up and the indexes are now up by an average of about one half percentage point. Bank shares have actually outperformed the broader market in Europe and, in general, buying has been seen across most sectors.

With some exceptions, commodities are weakening this morning. Crude oil has slipped slightly but remains solidly above the $78 mark. Gold sold down from a high near $113 during the night and is showing about a $1 loss in today’s trading at $1106. The Dollar is a bit mixed with gains on the Yen and Pound, but falling further on the Euro.

There will be some Retail Sales figures, Consumer Confidence, and the Case Shiller Home Price Index released today. Property values in 20 metropolitan areas probably fell 7.2 percent in October from a year earlier, the smallest 12-month drop since 2007, according to analyst estimates. On the earnings side, Onstream Media and a small list of Asian companies are among the few scheduled reports today.

Bank of America’s short interest soared more than any company on the NYSE in the two weeks following its announcement it was repaying U.S. bailout funds. Bank of America’s short interest jumped by 165 million shares, or 218%, for the two weeks ending Dec. 15th. Outstanding short interest on Bank of America surged to more than 240 million shares, or about 2.42% of the total shares outstanding, up from about 76 million or 0.88% at the end of November. Among large financials, Citigroup also stood out as a major target for short sellers in the first half of December. Citigroup saw a nearly 30% increase in outstanding short interest during the two week period, and its 65 million increase in short interest was the third-largest total on the NYSE. Bank of New York Mellon also continued to be a short seller target, seeing a nearly 23% rise in short interest after a jump of almost 18% at the end of November. MetLife has also seen a rise in short interest of more than 22% through Dec. 15 compared to the previous two week period. In some cases this may be because of a flood of new shares in the marketplace as several financial institutions have increased their float to raise capital and exit the TARP umbrella. This level of short selling, however, says a lot about investors’ outlook for the banking system in the year ahead.

Posted in: Morning Call: Daily Analysis of the Global Markets and Economy

Tagged with: bonds, economy, gold, oil, stocks